There's no telling exactly where the Trump administration's trade war is going as the president authorizes tariffs and then quickly suspends them, only to authorize them again and suspend them again or provide waivers for certain industries. While tariffs on narrowly defined categories of goods to guard against unfair competition may be workable, the administration's shotgun approach to tariffs risks a cutoff of strategic minerals that could strangle America's tech industry.
As I've written before, the United States is dangerously dependent on other countries for a wide-ranging list of metals and, in some cases, completely dependent. (For more on that, see here, here, here and here.) Responses to tariffs do not have to take the form of retaliatory tariffs by the targeted country. They can take the form of export restrictions that deny the United States key commodities and products necessary to important industries.
China currently controls 69 percent of rare earth elements (REE) mine production and almost 90 percent of the processing of these elements. REEs are a group of metals, often found in deposits together, that are critical for modern electronics (such as computer hard disks, smartphones, and cameras); strong magnets used in hybrid cars and wind turbines; X-ray and MRI scanning equipment; aircraft engines; and crude oil refining. This is just a partial list. There are no viable substitutes for these metals available at any scale that would be meaningful.
By the way, China's share of REE processing versus its share of worldwide mine production tells us that some countries that mine REEs remain partially or wholly dependent on China to process the ore. Until the opening of a domestic processing facility in California, the United States was also dependent on China for processing.
The Chinese have already begun to restrict exports of the technology for processing REEs. In December in response to U.S. restrictions on the export of advanced computer chips and production equipment to China, China banned exports of gallium, germanium and antimony to the United States. These are not REEs. However, gallium and germanium are key building blocks for semiconductors of the kind used in advanced computer chips. Germanium is also used in infrared technology, fiber optic cables and solar cells. Antimony is used in ammunition, flame retardants, ceramics, and glass and rubber products.
Nearly all of the world's gallium mine production comes from China. Germanium mine production is not reported publicly, but the United States gets 51 percent of its germanium from China. China dominates antimony production with 60 percent of annual mine production.
The ban on Chinese exports of gallium, germanium and antimony signals that China is willing to take the economic pain involved in denying itself sales into the U. S. market in order to make a point. Don't be surprised if sometime this year, China decides to make a point about its displeasure with America's trade war by banning or seriously curtailing REE exports to the United States. If it happens, the move will show that protecting American industry is more complicated than the Trump administration realizes.
Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.
Kurt: Another great post exploring factors that the mainstream media and our new federal government rarely think about. I typically don't post comments but I read your work religiously every Sunday for the unique insights that you provide. Economic warfare is a dangerous game to play in our complex system because of the unforeseen consequences of any major action, such as applying tariffs on both your friends and your supposed enemies.
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